Argus Corporation Limited: Third Quater Status Update Report.TORONTO Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing -- The first paragraph under the "International Developments" heading of the release dated Nov. 12, 2004 should read: The defendants to International's Second Amended Complaint amended complaint n. what results when the party suing (plaintiff or petitioner) changes the complaint he/she has filed. It must be in writing, and can be done before the complaint is served on any defendant, by agreement between the parties (usually their lawyers), that was filed in Illinois Illinois, river, United States Illinois, river, 273 mi (439 km) long, formed by the confluence of the Des Plaines and Kankakee rivers, NE Ill., and flowing SW to the Mississippi at Grafton, Ill. It is an important commercial and recreational waterway. on October October: see month. 29, 2004, including Hollinger Hollinger may refer to:
The area is comprised primarily of relatively affluent detached and semi-detached housing, as well as modern apartments. and Ravelston Management Inc., certain of their current and former directors and officers and others, have to respond to the Complaint by December December: see month. 13, 2004. (sted The defendants to International's Second Amended Complaint that was filed in Illinois on October 29, 2004, including Hollinger, Ravelston, certain of their directors and officers, KPMG KPMG Klynveld Peat Marwick Goerdeler (accounting firm) KPMG Kaiser Permanente Medical Group KPMG Keiner Prüft Mehr Genau (German) KPMG Kommen Prüfen Meckern Gehen and others, have to respond to the Complaint by December 13, 2004.) The corrected release reads: ARGUS CORPORATION Argus Corporation, based in Toronto, Ontario, is an investment and holding company founded in 1945 by its President E. P. Taylor with minority partners Colonel W. Eric Phillips and Wallace McCutcheon and other investors. LIMITED: THIRD QUATER STATUS UPDATE REPORT Argus Corporation Limited ("Argus Argus (är`gəs) or Argos (är`gŏs, –gəs), in Greek mythology. 1 Many-eyed monster, also called Panoptes. He guarded Io after she had been changed into a heifer. ") (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :AR.PR.A)(TSX:AR.PR.D)(TSX:AR.PR.B) today provided a status update of developments since its last Status Update Report was filed on October 29, 2004. Argus is providing updates on its affairs on at least a bi-weekly basis. These reports are being made in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with certain guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. of the Ontario Securities Commission The Ontario Securities Commission (OSC) is a regulatory agency which administers and enforces securities legislation in the Canadian province of Ontario. The OSC is an Ontario Crown corporation which reports to the Ontario legislature through the Minister of Finance. (the "OSC O.S.C. n. short for Order to Show Cause. (See: Order to Show Cause) ") until Argus is able to meet its public filing obligations. These guidelines are pursuant to the Management and Insider Cease Trade Order that was issued by the OSC on June June: see month. 3, 2004 (the "Order") with respect to the management and insiders of Argus. Argus' Status Update Reports that have been filed since the Order are available to review at www.sedar.com. This Report includes certain updates regarding Hollinger Inc. ("Hollinger") of which Argus owns or controls 61.8% of the Retractable re·tract v. re·tract·ed, re·tract·ing, re·tracts v.tr. 1. To take back; disavow: refused to retract the statement. 2. Common Shares ("Common Shares") and Hollinger International Inc. ("International") of which Hollinger owns 68% of the voting shares Voting Shares Shares that give the stockholder the right to vote on matters of corporate policy making as well as who will compose the members of the board of directors. Notes: Different classes of shares, such as preferred stock, sometimes don't allow for voting rights. and 18.2% of the equity. The Report further provides certain financial statements and an update as to the preparation and filing of financial statements and other related matters by Argus. Argus desires to keep the public informed of its financial activities despite its present inability to produce financial statements consolidated with those of Hollinger. It has previously released financial statements that are not consolidated with those of Hollinger for the first two Quarters of 2004 on the basis of alternative financial reporting. Argus is similarly attaching hereto here·to adv. To this document, matter, or proposition. hereto Adverb Formal or law to this place, matter, or document Adv. 1. its Special Purpose Interim Financial Statements for the nine months ended September September: see month. 30, 2004. The attached financial statements consolidate Argus and its subsidiaries other than Hollinger. For these Special Purpose Financial Statements, that investment in Hollinger is accounted for using the market value basis of accounting.This is a change from the Special Purpose Statements that were issued for the first two Quarters of 2004 that were produced on the cost basis of accounting. Argus considers that the market value basis of accounting is the most informative for the investing public. Argus historically provided its statements on that basis up until and including the filing of its audited financial statements for 2003. However, a change in accounting policy has required that Argus file financial statements prepared on the basis of consolidation with those of Hollinger for fiscal periods beginning in 2004.Argus has not been able to date to file such financial statements and each related Management Discussion and Analysis ("MD&A") for these periods as Hollinger has not filed its audited financial statements for 2003 and its unaudited statements unaudited statement A financial statement prepared by an auditor but not in accordance with generally accepted auditing standards. Unaudited statements are prepared to less rigorous standards than audited statements. Compare audited statement. for the fiscal Quarters in 2004. Hollinger, in turn, has been unable to file its audited financial statements for 2003 and subsequent quarters in 2004 as International has not prepared its 2003 audited statements. International advised on October 15, 2004 that it expected to be able to complete its audited financial statements (and related MD&A) for its fiscal year ended December 31, 2003 within several weeks from that announcement and to complete its interim financial statements for the fiscal Quarters ended March 31 and June 30, 2004 shortly thereafter. It announced that appropriate filings would then be made on Forms 10-K, 10-Q and 8-K with the U.S. Securities and Exchange Commission (the "SEC") and in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . International subsequently announced that those filings were expected to be made in November November: see month. , 2004. Hollinger's ability to prepare its 2003 financial statements as consolidated with those of International and for the Quarters in 2004 is dependent on a level of cooperation from International and its auditors AUDITORS, practice. Persons lawfully appointed to examine and digest accounts referred to them, take down the evidence in writing, which may be lawfully offered in relation to such accounts, and prepare materials on which a decree or judgment may be made; and to report the whole, together .In this regard, Hollinger and International have agreed to negotiate in good faith a Cooperation and Confidentiality Agreement, which agreement to negotiate in good faith was incorporated in an Order of the Delaware Delaware, state, United States Delaware (dĕl`əwâr, –wər), one of the Middle Atlantic states of the United States, the country's second smallest state (after Rhode Island). Chancery Court The Chancery Court of York is an ecclesiastical court for the Province of York of the Church of England. The presiding officer, the Official Principal and Auditor, has been the same person as the Dean of the Arches since the nineteenth century . on October 30, 2004. Once Hollinger has prepared its financial statements for the Quarters in 2004, Argus would, in turn, then be able to consolidate its financial statements with those of Hollinger and bring its financial reporting up to date. Argus is however unable to determine when that may be commenced or completed owing to owing to prep. Because of; on account of: I couldn't attend, owing to illness. owing to prep → debido a, por causa de various uncertainties. Financial Position of Argus Argus had Cdn. $288,433 of cash as of the close of business on November 12, 2004. It is contemplated that Argus will need to obtain additional funds in order to continue to pay dividends on its Class A and Class B Preference Shares on an uninterrupted basis, including those that are due to be paid on February February: see month. 1, 2005. Argus intends to make efforts to ensure such payments. Argus indirectly owns 21,596,387 Retractable Common Shares of Hollinger (each a "Share") with a market value at the close of trading on November 12, 2004 on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. of Cdn. $6.00 per share or an aggregate of Cdn. $129,578,320. The amount of its shareholdings is subject to the minority interest of The Ravelston Corporation Limited Ravelston Corporation Limited is a Canadian holding company that was largely controlled by Conrad Black and business partner David Radler. It held shares in Black's other holding companies, such as Hollinger International, now known as Sun-Times Media Group. ("Ravelston"), the parent of Argus.11,862,342 of the Shares, being approximately fifty-five percent of the Shares, are owned by a subsidiary of Argus in which Ravelston has a significant minority interest. The financial statements of Argus have further set out a liability for an amount on account of future income taxes on unrealized net capital gains. Reference should be made to the attached financial statements of Argus. Proposed Hollinger Privatization privatization: see nationalization. privatization Transfer of government services or assets to the private sector. State-owned assets may be sold to private owners, or statutory restrictions on competition between privately and publicly owned On October 28, 2004, Hollinger announced a proposal by Ravelston for a going private transaction involving Hollinger. The proposed transaction would be structured as a share consolidation and retirement of its shares held by parties other than by Argus and Ravelston directly and indirectly. The consideration to be paid to shareholders has not yet been determined and, once proposed by Ravelston, is to be reviewed by a committee of independent directors of Hollinger which will retain independent legal and financial advisors to assist it in that review. Argus will review and consider the sufficiency of the terms of the proposal when they are announced.It is presently contemplated that the transaction would result in Argus holding a greater percentage of the Shares of Hollinger but that Hollinger would then be a private company without the public company liquidity that currently exists. On November 12, 2004, Argus established a committee of its independent Directors (the "Independent Committee"), comprised of Paul Paul, 1901–64, king of the Hellenes (1947–64), brother and successor of George II. He married (1938) Princess Frederika of Brunswick. During Paul's reign Greece followed a pro-Western policy, and the Cyprus question was temporarily resolved. A. Carroll Car·roll , James 1854-1907. British-born American physician noted for his research on yellow fever. In 1900 he deliberately infected himself with the disease for experimental purposes. , Q.C. and Donald M.J. Vale, to review that proposed transaction and make recommendations to the Board of Directors of Argus.The Independent Committee will retain such independent professional advisers as it deems necessary. Hollinger's Financial Position Hollinger announced on November 1, 2004 that it and its subsidiaries had approximately US $13.03 million of cash or cash equivalents on October 29, 2004. Hollinger has previously reported that it has approximately US $10.5 million of cash deposited as collateral for its borrowings and that it is entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to apply this amount towards future interest payments on its Senior Secured Notes. Hollinger directly or indirectly owns 792,560 shares of Class A Common Stock and 14,990,000 shares of Class B Common Stock of International. Based on the closing price of the shares of Class A Common Stock of International on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. at the close of business on November 12, 2004 of US $17.80, the market value of Hollinger's direct and indirect holdings in International is US $280,929,560. All of Hollinger's interest in the shares of Class A Common Stock of International is being held in escrow escrow Instrument, such as a deed, money, or property, that constitutes evidence of obligations between two or more parties and is held by a third party. It is delivered by the third party only upon fulfillment of some condition. with a licensed trust company in support of future retractions of its Series II Preference Shares. All of Hollinger's interest in the shares of Class B Common Stock of International is pledged as security in connection with US $78 million of Senior Secured Notes and US $15 million of Second Priority Notes issued by it. Hollinger to Share in Net Telegraph telegraph, term originally applied to any device or system for distant communication by means of visible or audible signals, now commonly restricted to electrically operated devices. Attempts at long-distance communication date back thousands of years (see signaling). Proceeds International and Hollinger have agreed that Hollinger is to receive a pro rata [Latin, Proportionately.] A phrase that describes a division made according to a certain rate, percentage, or share. In a Bankruptcy case, when the debtor is insolvent, creditors generally agree to accept a pro rata share of what is owed to them. portion of dividend distributions or tender purchases from International's remaining proceeds from the sale of International's Telegraph properties after the repayment of certain debt and taxes (the "Proceeds") proportionate pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. to its shareholdings of International or, in the case of a self tender, to the number of shares tendered. Hollinger in turn has agreed that the injunction injunction, in law, order of a court directing a party to perform a certain act or to refrain from an act or acts. The injunction, which developed as the main remedy in equity, is used especially where money damages would not satisfy a plaintiff's claim, or to granted by Vice-Chancellor VICE-CHANCELLOR. The title of a judicial officer who decides causes depending in the court of chancery; his opinions may be reversed, discharged or altered by the chancellor. Strine in Delaware limiting Hollinger's control of International could be extended beyond its October 31, 2004 expiration date Expiration Date The day on which an options or futures contract is no longer valid and, therefore, ceases to exist. Notes: The expiration date for all listed stock options in the U.S. to no later than January 31, 2005. The injunction is to expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. on the earlier of the date the Proceeds have been distributed to International's shareholders and January 31, 2005. International has further agreed not to block any payment to Hollinger unless that is required by a court order (which it will not seek), statute or regulation.There is to be no reduction or set-off A demand made by the defendant against the plaintiff that is based on some transaction or occurrence other than the one that gave the plaintiff grounds to sue. The set-off is available to defendants in civil lawsuits. . The terms of the agreement between International and Hollinger have been incorporated in an Order of the Delaware Chancery Court dated October 30, 2004.That Order provides that International will use its reasonable best efforts to cause any distribution of the Proceeds to occur by January 31, 2005. Other Hollinger Developments Ernst & Young Inc. ("E&Y") has commenced its inspection of Hollinger pursuant to an Order of the Ontario Superior Court of Justice The Superior Court of Justice for Ontario, Canada is the successor to the former Ontario Court of Justice (General Division), and was created on April 19 1999. Its predecessor, the Ontario Court (General Division) was the result of the 1990 merger and discontinuance of the previous (the "Court") pursuant to s. 229(1) of the Canada Business Corporations Act The Canada Business Corporations Act, also known as Bill C-44, is a Canadian act respecting Canadian business corporations. See also
E&Y is to provide its preliminary report to the Court on November 25, 2004. Catalyst's second Application to the Court to remove all of the directors of Hollinger but for two directors who were appointed on September 27, 2004 was heard on November 2 and 3, 2004 before Mr. Justice Colin Campbell There have been several notable people named Colin Campbell: in Scottish history:
On November 2, 2004, in advance of the Hearing of the second Catalyst Application, Lord Black retired as a Director and as Chairman and Chief Executive Officer of Hollinger. Catalyst has further requested in its second Application an injunction restraining RESTRAINING. Narrowing down, making less extensive; as, a restraining statute, by which the common law is narrowed down or made less extensive in its operation. any non-arm's length transactions involving Hollinger without notice to and approval of the Court. Mr. Justice Campbell has reserved his decision in Catalyst's second Application. Hollinger has given certain undertakings not to enter into related party transactions (as defined) without providing two business days' prior notice to counsel for Catalyst. For additional information on developments respecting Hollinger, including a more-detailed review of the terms of the proposed share consolidation and privatization, reference can be made to its public filings online at www.hollingerinc.com, www.hollinger.com or www.sedar.com. International Developments The defendants to International's Second Amended Complaint that was filed in Illinois on October 29, 2004, including Hollinger, Ravelston and Ravelston Management Inc., certain of their current and former directors and officers and others, have to respond to the Complaint by December 13, 2004. The total amount of damages sought by International in the Second Amended Complaint is approximately US $425 million together with pre-judgment interest of US $117 million and costs. On November 11, 2004, International reported that it has incurred legal and other costs related to the Special Committee investigation of approximately US $46.3 million during the nine-month period ended September 30, 2004.This is in addition to US $9.8 million International reported that it spent on the investigation in 2003. For additional information on developments respecting International, reference can be made to its online public filings at either www.hollingerinternational.com or http://www.sec.gov/edgar.shtml. There has been no other material change from the information contained in the Status Update Report of Argus issued on October 29, 2004.
Argus Corporation Limited
Special Purpose Interim Financial Statements
These financial statements consolidate all subsidiaries
other than Hollinger Inc. The investment in Hollinger Inc.
is carried at market value.
September 30, 2004
(Unaudited)
ARGUS CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF NET ASSETS
---------------------------------------------------------------------
As At
September 30, December 31,
2004 2003
(unaudited) (audited)
--------------- --------------
ASSETS
Cash $ 564,118 $ 2,642,802
Investments in Hollinger Inc. 86,385,548 71,268,077
Due from parent company (note 8) - 59,242,189
Due from affiliated company (note 8) - 375,802
Other assets 99,803 124,700
--------------- --------------
87,049,469 133,653,570
--------------- --------------
LIABILITIES
Dividends payable 251,703 251,703
Accounts payable and accrued
liabilities 45,997 80,128
Due to parent company (note 8) 308,218 -
Future income taxes on unrealized
net capital gains 14,793,176 12,062,960
Minority interest 20,585,670 19,637,652
--------------- --------------
35,984,764 32,032,443
--------------- --------------
Net Assets - at indicated
market value $ 51,064,705 $ 101,621,127
--------------- --------------
--------------- --------------
SHAREHOLDERS' EQUITY
Capital Stock
Authorized
22,324 Class A preference shares,
$2.50 series, cumulative
55,893 Class A preference shares,
$2.60 series, cumulative
1,000,000 Class B preference
shares, 1962 series, cumulative, $2.70
Unlimited Class C participating,
non-voting, preference shares
Unlimited common shares
Issued
22,324 (2003 - 22,324) Class A
preference shares, $2.50 series $ 1,116,200 $ 1,116,200
55,893 (2003 - 55,893) Class A
preference shares, $2.60 series 2,794,650 2,794,650
298,400 (2003 - 298,400) Class
B preference shares, 1962 series 14,920,000 14,920,000
6,677,263 Class C preference shares 60,486,099 60,486,099
1,671,661 common shares 15,782,019 15,782,019
--------------- --------------
95,098,968 95,098,968
--------------- --------------
Contributed surplus 768,532 768,532
Retained Earnings / (Deficit) (52,180,839) 9,814,820
Unnrealized appreciation
(depreciation) of investments 7,378,044 (4,061,193)
--------------- --------------
(44,034,263) 6,522,159
--------------- --------------
$ 51,064,705 $ 101,621,127
--------------- --------------
Net asset value per Class C
preference and common share $ 3.86 $ 9.80
--------------- --------------
ARGUS CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
September September September September
30, 30, 30, 30,
2004 2003 2004 2003
(unaudited) (unaudited)(unaudited) (unaudited)
---------- ----------- ---------- -----------
Investment income
Dividends $ - $ - $ - $ 998,208
Interest 3,128 29,231 23,978 80,007
---------- ----------- ---------- -----------
3,128 29,231 23,978 1,078,215
Expenses
General, office and
administrative 79,380 198,404 1,022,032 404,488
---------- ----------- ---------- -----------
Net investment income
(loss) before minority
interest (76,252) (169,173) (998,054) 673,727
Minority interest - - - (159,385)
---------- ----------- ---------- -----------
Net investment income
(loss) for the period (76,252) (169,173) (998,054) 514,342
Increase (decrease)
in unrealized
appreciation of
investments (17,844,127) (1,531,725) 11,439,237 (21,217,043)
------------ ----------- ---------- -----------
Increase (decrease)
in net assets
resulting from
operations (17,920,379) (1,700,898) 10,441,183 (20,702,701)
------------ ----------- ---------- -----------
------------ ----------- ---------- -----------
Loss from investment
operations per Class C
preference and common
share $ (2.12) $ (0.23) $ (6.06) $ (2.57)
---------- ----------- ---------- -----------
ARGUS CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
---------------------------------------------------------------------
Nine Months Twelve Months
Ended September Ended December
30, 2004 31, 2003
(unaudited) (audited)
----------------- ------------------
Retained Earnings -
Beginning of the period $ 9,814,820 $ 10,325,724
Add: Investment income
Net investment income
(loss) for the period
ending (998,054) 506,353
----------------- ------------------
8,816,766 10,832,077
----------------- ------------------
Less: Dividends
Common Share 60,242,496
Class A preference shares,
$2.50 series 41,858 58,748
Class A preference shares,
$2.60 series 108,991 152,829
Class B preference shares,
1962 series 604,260 805,680
----------------- ------------------
60,997,605 1,017,257
----------------- ------------------
Retained Earnings /
(Deficit) - End of the
period $ (52,180,839) $ 9,814,820
----------------- ------------------
----------------- ------------------
ARGUS CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
September September September September
30, 30, 30, 30,
2004 2003 2004 2003
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
operations $(17,920,379) $(1,700,898) $10,441,183 $(20,702,701)
Distributions to
shareholders
Dividends from net
investment income (251,703) (255,078)(60,997,605) (765,499)
Capital share
transactions
Purchase for
cancellation of
Class A preference
shares - (5,000) - (80,000)
----------- ----------- ----------- -----------
Decrease in net
assets (18,172,082) (1,960,976)(50,556,422) (21,548,200)
Net assets -
Beginning
of the period 69,236,787 111,623,784 101,621,127 131,211,008
----------- ----------- ----------- -----------
Net assets - End of
the period 51,064,705 109,662,808 51,064,705 109,662,808
----------- ----------- ----------- -----------
ARGUS CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF UNREALIZED APPRECIATION OF INVESTMENTS
---------------------------------------------------------------------
Period Ended
Nine Months Twelve Months
September 30, December 31,
2004 2003
(unaudited) (unaudited)
--------------- --------------
Balance - Beginning of the year $ (4,061,193) $ 24,675,785
Increase (decrease) in unrealized
appreciation of investments 15,117,471 (37,932,880)
Decrease / (increase) in future
income taxes (2,730,216) 3,708,878
Decrease / (increase) in minority
interest in net unrealized
appreciation of investments (948,018) 5,487,024
---------------------------------
Balance - End of the period $ 7,378,044 $ (4,061,193)
--------------- --------------
--------------- --------------
ARGUS CORPORATION LIMITED
Notes to Special Financial Statements
September 30, 2004
---------------------------------------------------------------------
(unaudited)
1 Basis of Presentation Argus' (the "Company") most-recent audited annual financial statements as at December 31, 2003 were prepared in accordance with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ") in Canada prevailing at the time.The Company owns directly and indirectly 61.8% of Hollinger Inc. ("Hollinger"), which in turn owns directly and indirectly 18.2% (29.7% as of December 31, 2003) of the equity of Hollinger International Inc. ("International"). Since July, 2003, changes to GAAP require the Company to account for all controlled subsidiaries using the consolidated method of accounting, applied prospectively beginning January 1, 2004. (see notes 3 and 11) The Company is currently unable to provide financial statements prepared in accordance with the new GAAP requirements. To assist our stakeholders Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. , the Company has prepared the attached unaudited interim Special Purpose Statements including the consolidation of Argus' investments except for its investment in Hollinger that was recorded using the market value basis of accounting.Although this basis of presentation is no longer in conformity with the new GAAP requirements, it is consistent with prior years' financial statement reporting.(see note 11) The financial information prepared prior to January 1, 2004 in these financial statements or any future statements prepared in accordance with GAAP will not be restated as the change to GAAP is applied prospectively. These interim financial statements are unaudited and have not been reviewed by the Company's auditors. 2 Ability to Continue Operations The Company depends for its liquidity upon dividend income, the support of its controlling shareholder, The Ravelston Corporation Limited ("Ravelston") and Ravelston's subsidiary Ravelston Management Inc. ("RMI (Remote Method Invocation) A standard from Sun for distributed objects written in Java. RMI is a remote procedure call (RPC), which allows Java objects (software components) stored in the network to be run remotely. ") and the sale of investments.On May 25, 2004 the Company became subject to a Management and Insiders Cease Trade Order ("MCTO MCTO Metropolitan Council Transit Operations (Minneapolis/St. Paul, MN, USA) MCTO Material Cost Take Out MCTO Monthly Cash Thru Options ") by the Ontario Securities Commission ("OSC"), which "MCTO" became final on June 3, 2004. The MCTO issued on June 3, 2004 continues to be in place. The Order was initially issued as a result of the Company not being able to complete and file its financial statements for the first Quarter of 2004 together with its related Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial ("MD&A") when due on May 15, 2004. Since then, the Company has similarly been unable to file its financial statements and related MD&A reports for the second and third Quarters of 2004. The delays in filing result from a change in accounting guidelines and a change in the Company's ability to exercise certain of its ownership rights over Hollinger.In addition, Hollinger has been unable to complete its financial statements because of a material change in its relationships with International. The OSC has also issued Management and Insider Cease Trade Orders on June 1, 2004 against each of Hollinger and International for the failure of each to file their audited financial statements for the year ended on December 31, 2003 and interim financial statements for the first Quarter of 2004 and related MD&A reports. Since then, those companies have similarly been unable to file their subsequent quarterly financial statements and MD&A reports when due. The MCTO prohibits Ravelston and RMI from selling shares of Argus and therefore precludes them from raising funds for the Company's support in this way without it receiving a specific exemption from the OSC. 3 Summary of significant accounting policies Significant accounting policy changes Argus is incorporated pursuant to the Canada Business Corporations Act. It has for many years reported its results as an investment company with its 61.8% holding of the common shares of its subsidiary Hollinger being valued and presented at market (akin to a closed end investment trust). The Company no longer meets the requirements of an investment company and is no longer permitted to record it's investment using the market value basis of accounting (see note 11). Argus holds only shares in Hollinger and has no cross-guarantees or other financial arrangements that would link its financial resources to Hollinger other than indemnities for certain directors (see note 4). Shareholders are encouraged to avail themselves of the Argus bi-weekly Updates provided to the Ontario Securities Commission and to the public via SEDAR (www.sedar.com) and to similarly avail themselves of the Hollinger and International counterparts on that same website. In addition, copies of press releases of all three companies are also found on SEDAR and may be referred to by investors.The Company believes that timely reviews of these various releases and filings offer the best way for investors to stay abreast of the rapid changes being experienced by Hollinger and International. Cash Cash includes cash equivalents of certain highly-liquid investments with original maturities of three months or less. Income taxes Future income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively-enacted tax rates expected to apply to taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized. Income tax expense is the sum of the Company's provision for current income taxes and the difference between opening and ending balances of future income tax assets and liabilities. Loss per share Basic loss per share is computed by dividing net loss, adjusted for dividends declared on the preference shares, by the weighted average of the Class C preference and common shares outstanding during the year. Use of estimates The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets Contingent Asset An asset in which the possibility of ownership depends solely upon future events uncontrollable by the company. Notes: An example might be a settlement from a lawsuit. See also: Asset, Balance Sheet, Contingent Liability, Liability and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to bad debts, investments, income taxes, and contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. and litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. . The Company relies on experience and on various other assumptions that are believed to be reasonable under the circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or in making judgments about the carrying values Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of assets and liabilities that are not readily apparent from other sources.Actual results may be expected to differ from these estimates. Related party transactions The Company's related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed upon Adj. 1. agreed upon - constituted or contracted by stipulation or agreement; "stipulatory obligations" stipulatory noncontroversial, uncontroversial - not likely to arouse controversy by the related parties and, for material amounts, have been approved by the Audit Committee. Financial instruments The carrying amounts reported on the consolidated balance sheets consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. for cash and cash equivalents, accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , accounts payable and accrued liabilities Accrued liabilities are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. approximate their fair values because of the immediate or short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. maturity of these financial instruments. Fair value estimates are not necessarily indicative of the amounts the Company might pay or receive in actual market transactions. 4 Risks and uncertainties Litigation risk The Company is involved as a defendant with numerous other parties in class action lawsuits class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax commenced in Illinois, Saskatchewan and Ontario, the outcome of which is very uncertain (see note 12). Regulatory risk The Company and Hollinger are the subject of regulatory actions (see notes 2 and 12). As noted above, this inhibits the Company's ability to provide liquidity to itself. If these orders were to be extended to Issuer Cease Trade Orders (which is no presently contemplated by the OSC), it would on the one hand, prevent shareholders from realizing on their investment and on the other hand, eliminate (at least temporarily) the market value of the Company's investment in Hollinger. Credit risk The Company's financial assets Financial assets Claims on real assets. that are exposed to credit risk consist primarily of cash and cash equivalents, and accounts receivable. Cash and cash equivalents are on deposit at major financial institutions. The Company evaluates the collectibility of its accounts receivable on an ongoing basis, based upon various factors including the financial condition and payment history of its debtor One who owes a debt or the performance of an obligation to another, who is called the creditor; one who may be compelled to pay a claim or demand; anyone liable on a claim, whether due or to become due. , an overall review of collections experience on other accounts and economic factors or events expected to affect the Company's future collections. Interest rate risk Interest rate risk arises because of the exposure to the effects of future changes in the prevailing level of interest rates.The Company has little direct exposure to interest rate risk on its short term deposits, however is exposed to indirect risk arising from the interest rate risk borne by its investee Hollinger and Hollinger's investee International with respect to their long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. .This risk may have significant effect on the market value of the Company's investment in Hollinger. Foreign currency risk Foreign currency risk arises because of the exposure to the effects of future changes in the prevailing level of currency exchange rates primarily between the US and Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents . The Company has little direct exposure to foreign currency risk, however, it is indirectly exposed to risk borne by its investee, Hollinger and by Hollinger's investee International with respect to their dividend income and certain foreign expenses incurred. This risk may have significant effect on the market value of the Company's investment in Hollinger (see note 12). Market value risk The Company's only significant asset is the investment in Hollinger and its investment is exposed to changes in the market price, which may or may not be influenced by changes in the market price of its subsidiary Hollinger International. Directors and officers insurance The Company did not renew its previous conventional directors' and officers' liability insurance directors' and officers' liability insurance A type of insurance taken to protect a firm's directors and officers against lawsuits  mainly suits instituted by unhappy shareholders of the firm. which expired ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. on June 30, 2004, as such coverage had become, in its opinion, prohibitively pro·hib·i·tive also pro·hib·i·to·ry adj. 1. Prohibiting; forbidding: took prohibitive measures. 2. expensive. The Company will instead bear the costs of any future claims and will provide indemnities for all of its directors and officers whereby each will be fully indemnified by the Company. The Company has indemnified two independent directors of its subsidiary Hollinger Inc. This arrangement will help to ensure that the Company's independent directors and officers may continue to fulfill ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. their duties. The Company is a defendant in three class actions complaints filed in Chicago, Illinois for unspecified Adj. 1. unspecified - not stated explicitly or in detail; "threatened unspecified reprisals" specified - clearly and explicitly stated; "meals are at specified times" amounts. Numerous other parties including International, Hollinger, Ravelston, RMI and certain directors and senior officers of those companies, and KPMG LLP LLP - Lower Layer Protocol .have been named as defendants.On August 2, 2004, a consolidated amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. class action complaint consolidating those earlier complaints, was filed in Chicago, Illinois. A further amended consolidated class action complaint is anticipated to be filed soon. 5 Investment in Hollinger Inc. Argus owns 21,596,378 retractable common shares of Hollinger (61.8%), which are presented in the financial statements at market value of $4.00 per share (December 1, 2003 - $3.30 per share) for an aggregate of $86,385,548. The cost of such shares is $81,821,693. Market value of these shares at November 11, 2004 is $5.90 per share or $127,418,683.
6 Income Taxes ('000)
Nine months Nine months
ended ended
Sept 30 Sept 30
2004 2003
$ (note 1)
$
--------------- --------------
Increase (decrease) in income
tax expense:
Current - -
Future 2,730 (4,477)
--------------- --------------
$ 2,730 $ (4,477)
--------------- --------------
The Income tax expense results from an unrealized gain Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. recorded as the Company accounted for and continues to present its investment in Hollinger using the market value method of accounting. Under the new GAAP requirement to consolidate its investment in Hollinger this amount would be unaffected by changes in the market value of Hollinger shares and would remain unchanged from January 1, 2004, the date the new GAAP requirement was effective. The Company has future tax assets resulting from loss carry forwards of $ 8.9 million. A full allowance has been taken against this amount, as it is not likely that these assets will be realized. 7 Capital stock The Class A and Class B preference shares are issuable in series. The issued Class A and Class B preference shares carry cumulative dividends and are redeemable Redeemable Eligible for redemption under the terms of an indenture. at the option of the corporation at $52.50 per share plus accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. dividends. The Class C preference shares, subject to the prior rights of the Class A and Class B preference shares, participate equally with the common shares in: (a) any dividends paid in any fiscal year after $0.30 per share has been paid on each Class C preference share and common share; and (b) any distribution of assets. The conditions of the Class A preference shares include that the Corporation shall purchase 3,750 shares of each of the $2.50 Series and $2.60 Series in the market on an annual basis. The Corporation is not obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. to purchase these shares at a price, including costs of purchase, exceeding $50 per share (being the paid up amount per share). The conditions of the shares provide that the Corporation is not in default in the event that it fails in the reasonable exercise of its discretion to purchase 3,750 shares in any year. There were no re-purchases of either the Class A preference shares, $2.50 series (2003 - 1,800) or Class A preference shares, $2.60 series (2003 - 5,050) during the period. 8 Amounts due from / to Related Parties ('000)
Amounts due from related parties include the following:
Sept 30 Dec 31
2004 2003
(note 1)
$ $
--------------- --------------
Due from parent company (a) - 59,242
Due from affiliated company (b) - 376
Due to parent company (c) (308) -
--------------- --------------
$ (308) $ 59,618
--------------- --------------
(a) The Company advances cash to its parent company, Ravelston, on an unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. and non-interest bearing basis.As at December 31, 2003, the Company had advanced $59,242,189. A dividend was declared and the amount was repaid April 7, 2004. (b) The amount due from Hollinger of $375,802 at December 31, 2003 represents an overpayment o·ver·pay v. o·ver·paid , o·ver·pay·ing, o·ver·pays v.tr. 1. To pay (a party) too much. 2. To pay an amount in excess of (a sum due). v.intr. To pay too much. of directors' and officers' insurance premiums resulting from an adjustment of premiums previously allocated to the Company. This amount was subsequently collected in July 2004. (c) The Company's parent company paid legal fees on behalf of the Company in January, 2004. This amount remains payable. 9 Minority interest The minority interest at September 30, 2004 consists of minority interest in the net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. of 509646 N.B. Inc. (a subsidiary of Argus). The minority interest in Hollinger however is not recorded herein as the Company's interest in Hollinger is recorded using the market value basis of accounting at September 30, 2004 rather than being consolidated as explained above. (see note 3) 10 Supplemental Information ('000)
The following is a reconciliation of the numerators used in
computing basic loss per share.
Three Three Nine Nine
months months months months
ended ended ended ended
Sept 30 Sept 30 Sept 30 Sept 30
2004 2003 2004 2003
(note 1)
$ $ $ $
---------- ---------- --------- ----------
Loss per share:
Numerator:
Net income (loss) (76) (169) (998) 514
Capital increase
(decrease) in
unrealized
appreciation of (17,844) (1,532) 11,439 (21,217)
investments
Less dividends paid to
class A and B
preference shareholders (252) (255) (755) (766)
---------- ---------- --------- ----------
Loss attributable to
class C and
common shareholders (18,172) (1,956) 9,686 (21,468)
Number of class C
preference and A
common shares 8,348,924 8,348,924 8,348,924 8,348,924
---------- ---------- --------- ----------
Basic loss per Class C
preference
and common share (2.12) (0.23) (6.06) (2.57)
---------- ---------- --------- ----------
11 Recent accounting pronouncements Investment Company In January, 2004, the CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) issued Accounting Guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. 18, "Investment Companies" ("AcG 18"). AcG 18 permits investment companies to measure their investments in subsidiaries at fair value. After much analysis and discussions with regulators, the Company does not meet the criteria of an investment company as defined in AcG18 and as such, the Company is not permitted to continue to record its investment in Hollinger using the market value basis of accounting.See "Generally Accepted Accounting Principles" note below for implications. Generally Accepted Accounting Principles In July, 2003, the Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. ("CICA") issued Handbook
This article is about reference works. For the subnotebook computer, see .
Consolidation of variable interest entities The CICA issued accounting guideline AcG-15, Consolidation of Variable Interest Entities ("VIEs"), which will be effective for all fiscal periods beginning on or after November 1, 2004. The guideline requires the Company to identify VIEs in which the Company has an interest, determine whether the Company is the primary beneficiary beneficiary Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. of such entities, and if so, to consolidate the VIE. A VIE is an entity that is structured such that either (a) the equity is not sufficient to permit the entity to finance its activities without external support, or (b) equity investors lack either direct or indirect ability to make decisions about the entity's activities, an obligation to absorb expected losses or the right to receive expected residual returns Residual Return Return independent of the benchmark. The residual return is the return relative to beta times the benchmark return. To be exact, an asset's residual return equals its excess return minus beta times the benchmark excess return. . A primary beneficiary is an enterprise that will absorb a majority of the VIE's expected losses, receive a majority of its expected residual returns, or both. The Company is currently in the process of identifying any potential impact on its consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge and is planning to implement this standard in 2005. 12 Subsequent events The Company a) It is not possible to quantify Quantify - A performance analysis tool from Pure Software. the impact, if any, that this litigation may have on the Company. b) On October 5, 2004, the Company reduced the stated capital stated capital See legal capital. attributed to each of its Common Shares (the "Common Shares") and Class C Participating Non-Voting Preference Shares (the "Class C Shares"), all of which shares are owned by The Ravelston Corporation Limited ("Ravelston"), the parent of the Company.Ravelston authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: a reduction of the stated capital to the extent of $76,263,118 by deducting $15,781,018 from the stated capital account for the Common Shares and $60,482,100 from the stated capital account for the Class C Shares. c) The total amount of the reduction was credited to Argus' contributed surplus account. The remaining total stated capital on those shares is $5,000. The reduction of the stated capital will not result in any tax or other consequences to the Company, nor will Ravelston receive any benefit from the reduction. The reduction in stated capital did not involve the payment of any distribution to Ravelston and did not cause any reduction in Argus' shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. . d) On October 5, 2004, the Board of Directors of the Company approved a regular quarterly dividend for the preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. of Argus in the amount of $251,703 that was paid on November 1, 2004. e) International and Hollinger have agreed that Hollinger is to receive a pro rata portion of the net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). that International holds from the sale of the Telegraph properties on July 30, 2004 (the "Net Proceeds") that International intends to soon distribute. Those Net Proceeds are estimated to be approximately US $700 million. Hollinger's anticipated receipt from the distribution of the Net Proceeds is to be based on the number of shares it holds of International or, in the case of a self-tender self-tender An offer by a firm to repurchase some of its own securities from stockholders, generally on a pro rata basis from those shares offered for sale. , equal in proportion to the number of shares tendered. Hollinger has in turn agreed to the extension of the injunction ordered as against Hollinger by the Delaware Chancery Court from October 31, 2004 to the earlier of the date of distribution of the Net Proceeds by International and January 31, 2005. International has agreed to not attempt to prevent Hollinger from receiving its portion of the Net Proceeds. f) On October 27, 2004, Ernst & Young Inc. (E&Y") was appointed as an inspector of Hollinger pursuant to s. 229(1) of the Canada Business Corporations Act.The appointment was made pursuant to an earlier Order of the Ontario Superior Court of Justice made on October 13, 2004 as a result of an Application by a shareholder of Hollinger for the appointment of an inspector. E&Y is conducting an investigation of certain of the affairs of Hollinger. It is to provide a preliminary report to the Court on November 25, 2004. g) On October 28, 2004, Hollinger announced a proposal by Ravelston for a going private transaction involving Hollinger. The proposed transaction would be structured as a share consolidation and retirement of its shares held by parties other than by the Company and Ravelston directly and indirectly. The consideration to be paid to shareholders has not yet been determined and, once proposed by Ravelston, is to be reviewed by a committees of independent directors of each of Hollinger and the Company which will retain independent legal and financial advisors to assist them in that review as they consider necessary. h) Hollinger further announced on October 28, 2004 that it had received binding commitments to issue up to US $40 million in aggregate principal amount of Second Priority Secured Notes and to borrow up to Cdn. $16 million to be secured by non-core real estate assets. These amounts are to be utilized to pay for the retraction In the law of Defamation, a formal recanting of the libelous or slanderous material. Retraction is not a defense to defamation, but under certain circumstances, it is admissible in Mitigation of Damages. Cross-references Libel and Slander. of, or payment for, its shares. The holders of a majority in aggregate principal amount of each of its Senior Secured Notes and Second Priority Secured Notes have consented to Hollinger incurring in·cur tr.v. in·curred, in·cur·ring, in·curs 1. To acquire or come into (something usually undesirable); sustain: incurred substantial losses during the stock market crash. 2. additional indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. and retiring its shares subject to certain conditions. i) On October 29, 2004, International filed its Second Amended Complaint as against Hollinger, Ravelston and RMI, certain of their Directors and Officers, KPMG and other defendants. International summarized its further amended claims as totalling approximately US $542 million, which includes pre-judgment interest of US $117 million. j) On October 29, 2004, International also has sought leave to appeal the dismissal by the Court in Illinois on October 8, 2004 of the Amended Complaint of International, which Amended Complaint had included claims that the Defendants activities had been in breach of the Racketeer Influenced Corrupt Organizations Racketeer Influenced Corrupt Organization (RICO) statute n. a federal law which makes it a crime for organized criminal conspiracies to operate legitimate businesses. Act. |
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